The benchmark S&P 500 closed out a tough five trading days on Friday with its worst weekly performance in over a year. The decline saw the index slip below the key 5,000 point level for the first time since late February. The escalation tied to the war in Gaza, the potential oil shocks and the US Federal Reserve waiting longer to cut interest rates all contributed to the uncertainty that Wall Street detests.
Earnings season began with banks posting strong results last week. But this week, disappointing quarterly reports from Dutch semiconductor equipment maker ASML, the world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing and Netflix pulled down technology stocks, dragging down the entire Nasdaq.
For the week, the S&P 500 dipped 3.1%, the tech-heavy Nasdaq Composite lost ground by 5.5%, and the Dow eked out a slight gain of 0.01%.
Future Wealth’s View
The culprit was the CPI reading – specifically housing. When US inflation peaked above 7% back in 2022, the culprits were everywhere—spread across goods and services. Now, with inflation back below 3%, the problem is mainly about housing. Hotter than expected readings for the rental category in the first few months of the year are a big reason the Federal Reserve held back on those rate cuts. “We thought we basically understood the mechanical, short run model of how much housing inflation should be coming down,” said Chicago Fed President Austan Goolsbee. “And it hasn’t come down as fast as we thought it was going to come down at this point.”
When markets turn south, the profit taking begins in earnest. This week, Super Micro Computer and Nvidia plummeted, with the two AI favorites leading the broad based tech selloff. Super Micro, sank 23% in its biggest drop since August, closing at its lowest in more than two months. Chipmaker Nvidia’s 10% drop made for its steepest plunge session since the start of the pandemic in March 2020.
It is important for investors to look long term or, at a minimum, year to date returns. Despite the sell off this week, the S&P 500 is still up ~5% year to date and up ~20% from a year ago.
A famous saying – “The secret of patience is to do something else in the meantime.”